The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1887-01-03
THE BANK QUESTION.
Senator John Sherman Discusses Financial
Affairs in . Letter 10 Boston Merchants.

banking system has realized all the good that
has ever been claimed for it by its authors. 1t
has furnished the best paper currency
issued by banking corporations. 1t was adopted
only after the fullest consideration, and won its
way into public favor only by slow process.
The first national bank bill had q hard passage
through Congress. From Deceln Der. 1862, it
remained during a long session of Congress I'M
| acted upon. In the next session it WAS debated
for nearly two weeks in the Senate. It was
greatly aided by Charles Sumner and Henry
Wilson. 1t was finally carried in the Senate by
the vote of Senator Anthony, who, when ap-
peaed to by Secretary Chase and myself to sup
port it, said he would vote for it for the sake of
his country, but it would ruin him in Rhode
Island. 1t carried through the House only
by the intelligent efforts of Boston merchant.
Samuel Hooper 1t promptly received the sig
nature of Abraham Lincoln
This banking system, like most others, en-
braces two distinct departrleuts-one of dis
counts, deposits and exchaug &c; the other. the
issue department. In the first department.
national bank has but little advantage over
State bank, except only in the credit which
comes to national bank by the frequent exam
ination and publication of its condition. The
popular idea of bank attaches mainly to its
| issue department. or the issue and circulation of
its notes as money 1t is in respect to this func-
ton that the provisions Of the banking law
mainly apply.
Now the great advantages of the national
banking system over any other can be stated in
| general terms. The franchises granted are free
and open to all who have the requisite capital
and comply with the law There is no element
of monopoly about it, nor any chance for pref
erence or favoritism. The notes of the banks
are absolutely secure beyond all per-
adventure. Over two thousand million of
national bank notes have been issued
since the system has been in force, and not one
dollar has been lost by failure to pay it on de-
| mand. 1t is of universal circulation, without
| question, throughout the United States, and,
| stree resumption, in all commercial countries in
| the world. In this respect it is, at least, on a
| parity with Bank of England note It is
| guarded against counterfeiring more carefully
than any other circulating note in existence. In
addition to all the guards that protect the green
| back, each bank is protected by special dies and
| the signatures of its officers. The cost of issu
ing and redeemng the national bank notes is less
| than that of any of the European banks. and is
only greater than that of the greenbacks be-
| cause of the necessity of sorting the notes of
| the several banks in the redemption office. The
distribution of these banks to every town OF i'm
! portance, and to almost every county of the
United States, has practically abolished all rates
of domestic exchange especially between cities.
however remote
| For these reasons, manifest to every inteli-
| gent man In our country, the national banks
| would, by common consent be continued
| permanent system but for the rapid payment of
| the public debt, which by the banking law is
made the sole allowable security for all the bank
| notes issued 1t is this difficulty which 1 sup
| pose the merchants of Boston would like to have
| stated in the fewest possible words
Would it be safe or prudent to accept any
| other form Of security than United States bonds
| the basis of national banking2 / can only say
know of none. The attempt to define such a
| security obtainabe in all parts of the United
States would open such dangers as would destroy
| the system. Nor do think it necessary now to
definitely answer question which need not arise
| for twenty years.
There are still nearly ST. 600, OO0O 900 of United
States bonds outstanding, not yet redeemable of
which $737 900 600 are not redeemable for twenty
] years. Why did not the national banks buy
| these bonds when the government was anxious
| to sell them at part The only answer that can
be made is that they held on to bonds bearing a
| higher rate of interest, and thus overreached
| themselves. | know one bank president per-
sonal friend of mine, who would surrender
! his called bonds because he thought he could,
after while, buy 4per cents. at less than par.
He lost at both ends of the line. 1t IS this error
of the national banks that has involved them in
all the difficulties of their position.
| But why do not they buy the T. per-cents now?
The answer is that by the advancing credit of
| the United States, these bonds that could have
| been bought in 1880 at par, worth 123.
| and would yield. present prices less than q
per cent. interest 1t Is a serious question
| whether, under the terms OF existing law bank
| governed by its self-interest afford to pay
| such rates for bonds for the privilege Of issuing
circulating notes to the amount of 80 per cent of
the par of the bonds.
This brings me to what appears to he the
clear, plain remedy for the rapid contraction of
| the currency now going on, more threatening to
| the people than to the banks, and that is to
change the present limit of circulation. AS the
| bonds are held security for the notes, and
| that only, why should the government demand
| a security out of all proportion to the obligation
| securedl Why demand margin of 38 per cent.
in a bond that does not vary, except to go up2
1t right enough when the law was passed,
when the bonds often under par. but now
the conditions are changed. The amount of cir
culaton allowed should be 80 per cent. of the
market value of the bonds.
t. TO- III vr,o Of ~ >Io Io.~
So it gradually will as the time for the maturity
of the bonds approaches, but the present law
provides, and it can easily be made clearer. that
once year, the bonds fall. additional bonds
may be called for by the Comptroller One
fourth Of the interest on the bonds applied
sinking fund, to the purchase of other bonds,
would repay the whole premium the bonds
large as it is. This simple remedy would secure
| the existence of the banks beyond peradventure
for twenty years. The increased circulation
would justify the purchase Of the bonds even al
the present rates.
Why has it not been adopted by Congress2 II
was strongly and ably recommended by Mr.
Knox and Mr.. Cannon, and, in substance. if not
in words, is recommended by the present Comp
troller. 1t is simply neglected by Congress as
| many other measures are neglected; but Ar
earnest effort made by the business men of the
United States would secure this provision, anG
thus preserve for twenty years the benefits OF
our national banking system. What ought to b.
done after that period may we'll be left to oul
successors. With the light of our experienced
. and the established benefits of the system, VIZ
, can hope that they will be wise enough to pre-
, ST We and perpetuate financial policy which
hal guided US through the perils of great civil
war; and which has advanced our country t
the foremost place among the nations of tn
world.
AS to the greater question of how to abolisl
. our vast and growing surplus revenue or to an
proprIate it for great purposes of national safet
or development-this is now exciting the atten
ton of Congress and the people of the United
States, and, may hope, will be solved witt
: wisdom and in a spirit of patriotism without re
gard to party ties or sectional animosities. It
! the glory and prosperity of our country, on
whole country and nothing but our country, tina
ought to animate US all in solving such problem
| as these